Originally posted by @Robert J.:
Originally posted by @Joshua Myers:
Originally posted by @Matt Higgins:
Just read an article from the MIT technology review and read up on what we already know. Life is not going back to normal tomorrow, next month, or maybe ever.
https://www.technologyreview.c...
until we get a long term fix for carona our economy will be as bad as its ever been. MIT predicts that this will not be the countries only bout with social distancing. Some will go back to work, and when cases rise they will clamp down again. It sounds like eventually rules will have to be enforced at the city, county, or state level. We will have to restrict travel and sacrifice some of our social liberties to live with the virus. How many business or apartment operators can withstand a 12-18 month disruption? How many people who work in US retail will be laid off by the end of this month? It amazes me that the stock market is only down 7000 points. After disastrous earnings reports for the next 3 quarters the only thing CEOs will be able to tell share holders is that we are cutting expenses and laying people off. Even if the government puts a moratorium on foreclosures who will still have a job when the moratorium comes off? The foreclosures will come in waives.
I have heard people say A and B class apartments is where it’s at because their jobs are safe and they can work from home. BS, I know a bunch of mid level executives and some are already being let go. Eventually they will trade down to C class. I am sure some of my C class tenants will be laid off soon, but at least they should be able to make most or some of their $700 rent on tax returns, unemployment, and stimulus. Even if they don’t, I would rather miss out on a $700 payment than an $2000 payment. I would rather pay my C class property tax bill than the A class bill.
Sorry if this is too doom and gloom, but I got the carona blues :(
It sounds like the government is going to bail out as many people as possible, but just like in 08, the people who had their loans modified usually ended up losing them anyway. I’m sure the fixed cost of running an apartment in NYC is high, you have a moratorium on evictions, a governor threatening civil war in a state telling citizens not to pay rent, and talking for 2 hours a day on national tv about how to make pasta. None of this can be good for the investor who was already losing residents to low tax states.
I wonder how the refi & roll, brrrr, and vrbo strategies will look 18 months from now? My least favorite BP line of all time, “I can’t wait for the next crash so I can scoop up all the good deals”. I’m sure that line is usually given by the highest leveraged of all of us or the person that will always be too scared to jump in.
Crazy times, someone talk me off the cliff :) how hard will multi family be hit when the dust settles?
You're getting blowback from this, but I think it's a fair question. Looking back at 9/11 and the GFC I think it's fair to say that things were materially different for 5-7 years and that we are still living with some repercussions of those events today.
For things to get back to normal:
- everyone in the world (not just the US) will need to see their earning capacity completely restored
- consumer balance sheets will need built up again
-all of the lost productivity in the manufacturing sector will need to be restored
-consumers sentiment will need to return to all time highs
-governments (federal, state and local) will need to come to terms with trillions of new debt and massive budget short falls. this will be a big issue for states and localities that are already flirting with default (see Illinois)
-pension funds will need replenished
-corporations will need to deal with serious damage to balance sheets and return to net spending on R&D and capital outlays (the energy sector might be the biggest issue here). corporate debt was already at or near all time highs for several sectors prior to the crisis
- Both national and local economies will need to see a return of animal spirits to the pre-crisis highs from both local business owner and in the tech industry. Several startups are already laying off employees
There are more issues that I'm worried about. What happens short term to these co-working spaces like We Work? The duration mismatch is ridiculous. What is going to happen to loss making startups and their high income employees living in trendy urban centers? How effective will the FEDs lending facilities be at arresting the liquidity crisis? Is there a point where no amount of centralized action can stop a cascading liquidity crisis, and, if so, where is that? If the FED and federal government couldn't restart the economy within 12-18 months after the GFC, have they learned how to do that in the past 10 years
I don't know what happens with all of this, no one does, but any prediction of life as normal by Q3 of Q4 assumes that the majority of these problems will melt away in early summer.
Just a couple of those points i'd like to address... (through my rose colored glasses)
1) Loss making startups? If they're operating at a loss and it's in their forecast a setback like this shouldn't matter and that depends on the type of startup. Most tech startups are geared towards some sort of remote idea anyways. A Crisis like this will also be the foundation of a 100 start ups in a year or two anyways. Co working spaces ... can easily be work from home spaces. Sure the company itself has issues but the people using them can and should be able to work from home.
2) I don't think we need to see a COMPLETE restoration in earnings capacities right away but i feel like we will see a big jump towards that as people are allowed to return to work.
3) Pensions be returned is true maybe. We're down about 26-28% off of the highs but that means we're only 5% below a bear market indicator. One or two good days can get us right back up there the way the market has moved over the last 3 weeks and if your pension isn't able to sustain a short term bear market you probably shouldn't be investing.
4) SOME Corporations will need to deal with a damaged balance sheet (hospitality). AND SOME are doing better than ever(retail/grocer). that's just a normal cycle.
5) Most towns in america don't rely on the tech industry so we generally don't care how they feel about anything. I live in a college town for example and as soon as the schools are back the restaurants will return and the brewery industry and the sentiment around town is people can't wait for it. That "animal spirit" hasn't left. Consumer sentiment isnt down because there isn't an underlying economic "bubble" that would cause people to worry (in my part of town at least).
6)all of the lost productivity is going to lead to an increase in demand all the while the workers are employed switching to items to be used in this covid-19 issue (ventillators, masks, etc)
7)consumer balance sheets historically aren't "built-up" to begin with so that's not a hill to high to climb. Americans are terrible at saving as a whole and yes a month or two of this is going to hurt but as soon as they start making money again they'll usually start spending it.
1. So loss making start ups were already facing increased scrutiny and funding was drying up. That funding is going to zero right now. These companies don't carry a lot of cash, maybe enough to fund their normal loss making operations for 6 months. The effect this will have on co-working spaces is not about the startups working from their garages. It's that the cowork companies are going to lose their short term tenants, and won't be able to make long term lease payments to the underlying landlords. There is a massive duration mismatch that hasn't been tested in a downturn. A significant source of demand for office space in low cap areas could be drying up pretty quickly.
2. Not everyone who goes on unemployment is going to stay on it by far, but 10% unemployment was a crisis in the last recession. We could easily see that on the back end of this after things are stabilized. We might not get that high, but 3% unemployment is out the window for a little bit. Even then, a lot of contractors are going to see work slow down as people have second thoughts about renovation projects, etc. The other side of the coin is that this is happening all over the world at the same time. Some larger European economies where already a hot mess before this started. How are Italy and Spain going to look on the back end. 20% of US exports go to the EU. 24% of US exports go to Latin America, where we haven't seen the impact this will have on several countries are already flirting with bankruptcy because of low commodity prices. Slow downs in these countries could have a material impact on the earnings capacity of various economic actors in the US.
3. Yes, if markets go back to record highs in short order and credit markets don't see an increase in defaults or restructuring then this shouldn't be a bigger problem than it already is (some pension funds were in crisis mode before this). BUT, if the economy and markets don't rebound quickly and/or interest rates return to pre-COVID 19 levels the funding shortfalls are going explode. States/localities have limited ways to make this up: increase taxes, increased contributions, increase borrowing (not always an option), decrease benefits, kick the can down the road, lie about assets and projected returns (this was already happening). These options would have a material impact on government, taxpayer and/or employee spending power.
4. Yes, some have cash and some don't and cycles are normal. In this scenario, however, most businesses are seeing revenue go to almost $0 in the short term, some are seeing revenue severely reduced, and a handful are seeing business stay the same or go up moderately. That's a normal cycle in the way that the depression was a normal cycle. I'm not saying that we're going into depression. The underlying point was that corporations will need to return to net capital outlays. Amazon and Kroger might invest new warehouses and logistics, but on the whole I'd expect US capex to fall off significantly (especially in the energy sector, which is a MAJOR employer in some areas of the country).
5. Every area of the country will be impacted to a different degree. I didn't know your particular situation or that you lived in a small college town when I wrote this. My bad. That doesn't change the fact that large sections of the economy will be impacted by this.
6. I'm not sure I understand what you're saying here? Are you arguing that a supply shock will lead to a surge in demand? I hope that you're right, but that has never happened before.
7. I don't know where you got this from. 1/2 of American households live paycheck to paycheck. Those out of work are either going into debt (credit cards, deferred rent, etc), defaulting on payments or reducing spending. Those debts and payments will have to be repaid, restructured or forgiven. All of that will have an impact on these consumers balance sheets and lead to a reduction in future spending from increase payments or lower access to credit. On the other end, do we expect the other 1/2 of Americans that save money and have reserves to all start living paycheck to paycheck when this is over or do we expect them to reduce spending and rebuild their balance sheet?
